- Appeal the denial
- Build your credit score so you have a greater chance of being approved when you decide to reapply.
- Work to improve your cash flow to prove you can repay the loan, and then reapply.
- Apply for a different loan through a bank or other lender, and consider applying for a smaller amount to increase your chances of being funded.
Was Your SBA Loan Denied? Here Is What You Can Do
If the SBA declined your SBA loan application, don’t panic. There are still many steps to take to help you get approved.
STEP 1: Try To Find Out Why Was Your Loan Application Denied
If your loan was denied, start by trying to find out why. Once you know the reason for the denial, you’ll know how to fix the problem.
- How do I find out what was the reason for denial?
○ You may get an SBA denial letter, or you could receive a denial letter from your lender. In either case, the letter may include information on why your application was denied.
○ If your SBA decline letter doesn’t specify a reason, contact your lender directly for additional information.
- Common reasons for declining SBA loan applications:
○ Business size not matching - The SBA criteria for a small business vary by industry. If your business doesn’t match the criteria, you could be declined.
○ Business character issues - Problems like criminal records, delinquency on existing loans, unpaid bills, and past felonies could cause the SBA to decline your loan.
○ Credit score issues - If your credit score is too low, you have a recent bankruptcy, or your credit history isn’t long enough, the SBA might question your creditworthiness and decline your application. You might wish to look further into the SBA loan credit score requirements.
○ Default on another government loan - A default on another loan can make it difficult to get approved for an SBA loan.
○ Funding needs issues - If you insufficiently proved and documented either the need for funds or your plan for how to use them, your application may be declined.
○ Other funding options have not been exhausted - You might have to seek out other types of funding before being eligible for an SBA loan.
○ Not enough collateral - The SBA requires collateral for loans of various sizes, and that collateral can vary. If you don’t have enough to put down, you might not be approved.
○ Business revenues or capital are insufficient for debt repayment - The SBA wants to see that you can pay back the loan, and if your revenue doesn’t support that, you could be declined.
○ Business operation issues - You need to be legally operating for a profit with all registration requirements fulfilled. Illegitimate industries include gambling, lending, and religious services.
○ Lack of personal investment - In general, the SBA requires a minimum equity injection of at least 10% of total costs for a new business, or 10% in the case of a change in ownership.
○ Location issues - SBA loans require that your business operates in the USA. In the case of an SBA Disaster Loan, your business has to be located in the designated disaster zone to qualify.
STEP 2: Improve Your Application Before Reapplying
You can reapply for a loan, but the SBA uses an E-Tran credit check system that requires that you wait 90 days before you reapply. This is the perfect time to reevaluate your application and look for ways to improve it. If you need to get money quickly, consider applying for a different SBA loan, such as an SBA line of credit, or look for alternative funding. If you want to reapply for the same SBA loan, you can improve key areas of your application:
- Improve your personal and business credit score: Don’t default on any loans, and make sure that you make all of your payments on time. Setting up automatic payments can help to ensure you don’t miss deadlines. Avoid applying for credit too often, since each inquiry can lower your score. It’s also important to make sure that you don’t have too many or too few credit accounts, and avoid closing your longest accounts, which contribute to your credit history length.
- Improve your company financial results: Focus on improving your debt service coverage ratio (DSCR), which is the amount of cash you have available to pay your business debts. Work on increasing your company’s profit while cutting down on unneeded expenses. Focus on paying down your existing debts, which can increase your DSCR and demonstrate that you’re in a position to take on and pay more debt.
- Increase your cash flow and ability to repay the loan: Focus on ways you can maximize your business’s income and cash flow, such as by offering clients discounts for early payment and managing your inventory so you stock only the products that sell well.
- Look for personal or business assets to use as a collateral: If your first application lacked collateral, look for additional assets that you can use. These can be personal or business assets, like a vehicle or business equipment that you recently acquired.
- Increase your personal investment in the company: Demonstrate that you are supporting the company by investing additional money of your own.
- Consider delaying your application: If you have a new business, delaying your application can give you
more time to build up your credit history, so you have a greater chance of
STEP 3: Reapply For The SBA Loan Of Your Choice
If your initial loan application was denied because of unmet SBA requirements, like problems with your business size or personal character, you may apply for reconsideration. Applying for reconsideration may help you to get approved if you found errors in your credit report or other loan documents, but in some cases, it won’t change the outcome. Your lender may be able to request reconsideration on your behalf. You can also apply by letter or email, and will need to submit the application for reconsideration within six months of the date when your first application was denied. When applying for reconsideration, you will need to include the following:
- Summary of the cause for denial
- A reason for reconsideration by the SBA
- Application or loan number
- Business name and address
- Borrower name
- Tax ID or employer identification number or Social Security number
- Copy of more recent business tax returns prior to the pandemic, with schedules included
- Signed and completed IRS form 4506-T
- Copy of voided check from the business bank account
- Up-to-date contact information
- Talk to your lender. Ask your lender for insight on why your application was denied, and make sure that you’re eligible to reapply.
- Strengthen your application. Look for ways to make your second application stronger. If you know why your first application was declined, take the time to address and fix that issue.
- Review the loan requirements. Before you start a second application, take the time to carefully review the loan eligibility requirements and make sure that you can meet each requirement.
- Start a new application. Take your time with the application and be sure to fully complete each section. Save your application and review it carefully to ensure that it’s accurate.
- Provide your supporting documents. Double-check that you include all of the requested documentation.
- If you were declined for an SBA 7(a) Loan, consider:
○ Business loans from online lenders: Online lenders offer business loans in varying amounts, often up to $500,000, that you can use for general operating expenses. Requirements vary depending on the lender, but there are many lenders who work with new businesses and with business owners who have low credit scores.
○ Invoice financing: Invoice financing allows you to quickly get cash for outstanding invoices that you haven’t collected on. A lender will often give you a percentage of invoice amounts upfront. Your invoices need to be due in 90 days, and instead of focusing on your credit rating, lenders consider the creditworthiness of your clients.
○ Small business grants: Small business grants can help you to get funds for various purposes. This article highlights what you need to know about small business grants.
○ Crowdfunding: You might also consider crowdfunding, especially if you need to raise money for a certain purpose, like a building purchase or an expansion. This article provides information on using crowdfunding for your business.
- If you were declined for an SBA 504 Loan, consider:
○ Hard money loans: Hard money lenders are often willing to work with new businesses and startups, and with applicants who have lower credit ratings. Just like with a 504 loan, you’ll need to put collateral down on your loan.
- If you were declined for SBA Microloans program, consider:
○ Business credit cards: A business credit card can help you to quickly get a smaller amount of money, usually up to $50,000. You might be able to get a credit card with an introductory 0% APR offer, so you might not pay any interest if you’re able to quickly pay off the balance.
○ Peer-to-peer lending: Using a peer-to-peer lending platform, you can secure funding directly from an individual lender, instead of using a bank. This article provides a detailed overview of peer-to-peer lending.
- If you were declined for SBA Disaster Loan, consider:
○ Business line of credit: A business line of credit gives you the flexibility of drawing down money, repaying that money, and then drawing down again. It can be ideal for ongoing funding needs. Check out this article for more information on what to expect from a business line of credit.
○ Small business grants: If you’re eligible for a grant, you’ll receive funding that you won’t have to pay back. Grants have strict requirements but can be a helpful funding option.
○ Equipment financing: If you need to purchase equipment for your business, look into financing options that the retailer offers. You might qualify for a retailer’s in-house financing, even if you don’t qualify for business financing through a bank.
- Other funding sources for new and small businesses:
○ Venture capital investing: With a venture capital arrangement, investors will fund your startup business and receive equity in return. This article describes the ins and outs of venture capital investing.
○ Angel investing: If you establish an angel investor arrangement, a wealthy individual investor will fund your startup and receive equity in your business in exchange for that investment. This article highlights everything you need to know about angel investing.
○ Bootstrapping: If you can’t or don’t want to secure other outside funding sources, you can always bootstrap your business with your own money and the income the business generates. Bootstrapping a business can be a challenge and requires vigilant attention to detail, but it can also allow you to grow your business without any debt or selling any equity.
STEP 4: Consider Alternative Funding Sources
If you don’t want to reapply or feel that you won’t qualify for an SBA loan, you might want to consider other types of funding sources. The right funding option for you will depend on the type of loan you wanted and how you plan to use the money.
Even if your SBA loan was denied, there are still things you can do to secure funding for your small business:
- Work with your lender to determine why you were denied and if you can fix that issue.
- Take a look at your whole business and look for improvements you can make so that you are more appealing to a lender.
- Consider reapplying for your loan.
- Look into alternative funding options like small business loans or business credit cards.
- Securing funding for a small business can be a challenge, but it’s important to be persistent and consider all of your potential funding options.
- Common reasons for declining SBA loan applications: